France’s Sarkozy warns Europe risks disintegration

French President Nicolas Sarkozy has warned that “never has the risk of disintegration been greater” for Europe.

He is addressing a gathering of European leaders of the centre right in Marseille.

EU officials are preparing for a key summit in Brussels, where they will be trying to clinch a deal on how to tackle the eurozone debt crisis.

The talks are described by analysts as “do-or-die” for the eurozone nations.

Germany and France are pushing for new EU treaties, saying stricter fiscal rules should be enshrined there.

Meanwhile, the European Central Bank has cut its interest rates back to their historic low of 1%, as expected by financial markets.

European Commission chief Jose Manuel Barroso, who is in the French city of Marseille, has urged EU to “do everything” to save the euro ahead of the Brussels summit.

“The entire world is watching. We must do everything” to save the euro, he said, adding: “It is extremely important that we all together, all the EU, show that the euro is irreversible.”

Mr Barroso is attending the annual congress of the centre-right grouping in the European Parliament, the European People’s Party (EPP), in the southern French city, which French President Nicolas Sarkozy and German Chancellor Angela Merkel are also due to attend.

French Europe Minister Jean Leonetti has said the single currency and the EU itself could be under threat if leaders fail to tackle the debt crisis.

According to Christian Fraser
(BBC News, Marseille)
The gathering in Marseille of the centre-right European People’s Party is a chance to hear the concerns of smaller eurozone nations. On stage or in the corridors of the congress, they have signalled their resistance to key elements of the Franco-German proposal. One of them is Ireland, which is opposed to the idea of wholesale treaty change – that of course might trigger a referendum – and the line in the Franco-German proposal that would move Europe towards a single corporate tax rate.

The Europe Minister for Ireland, Lucinda Creighton, said: “We have our red lines too. This is not a fait accompli just because two have found agreement.”

There are other reservations among the Swedes, the Finns and the Czechs. Among the club of the smaller nations, there seems to be greater inclination towards Herman Van Rompuy’s proposals of an amendment to the Lisbon Treaty – easier to agree, quicker and less messy for national parliaments.

And so after the optimism that surrounded the Franco-German deal earlier in the week there are doubts emerging.

“The situation is serious – the euro can explode and Europe unravel,” he told French TV.

“That can be a catastrophe not just for Europe and for France but for the world.”

The 10 non-eurozone members of the 27-member EU, including the UK, are concerned they may become isolated if the eurozone nations – driven by Berlin and Paris – decide to move to a new treaty on their own.

Ahead of the summit, all the signs are that it could be a bruising affair, the BBC’s European affairs correspondent Chris Morris in Brussels reports.

On Wednesday, US President Barack Obama discussed the eurozone crisis with Mrs Merkel during a telephone call. The White House said both leaders agreed that any solution had to be lasting and credible.

US Treasury Secretary Timothy Geithner has met new Italian Prime Minister Mario Monti in Rome to discuss ways of supporting the eurozone, and how international institutions like the IMF can assist the region “in this delicate phase”, Mr Monti said in Rome.

Mr Geithner says “the world can be encouraged by the progress made in the last few weeks” and that the US has a very strong interest in the success of the EU summit.

This is the latest in a series of talks Mr Geithner is holding with eurozone leaders as US concern over the crisis deepens.

Merkel-Sarkozy letter
The key proposal on the agenda of the gathering in the Belgian capital later on Thursday is how to enforce budgetary discipline with automatic penalties for those eurozone nations that overspend.

Mrs Merkel and Mr Sarkozy are seeking to enforce this by changing the existing EU treaties.

“We are convinced that we need to act without delay,” the two leaders wrote in a joint letter to European Council President Herman Van Rompuy, adding that the new treaty was needed by March.

Mr Van Rompuy is offering a plan which requires only amending the treaties.

The Merkel-Sarkozy letter also called for “a renewed contract between the euro area member states”.

The German-French plan is based on the following key provisions:

the European Commission to have the power to impose penalties for nations that run excessive budget deficits
all 17 eurozone nations should amend their national legislation to require balanced budgets
the eurozone countries to have common corporation and financial transaction taxes
any future bailouts would not require private investors to absorb part of the costs, as happened in the Greece case
But an EU commissioner publicly derided the idea that sanctions alone could compel euro member states to abide by the rules.

He told the BBC that smaller EU states were disgruntled at the dominance of France and Germany in the decision-making process.

Mr Van Rompuy is offering a fast-track “fiscal compact” that does not need lengthy ratification by parliaments or national referendums.

In an interim report, the European Council president, who will be chairing the summit, argues that the necessary reforms can be adopted simply by amending a protocol – a procedure that needs national consensus but does not require substantial changes to the EU treaties.

This, Mr Van Rompuy argues, would speed up the implementation of reforms and remove any potential political complications.

However, a senior German official dismissed as a “trick” talk of introducing a fiscal agreement for the eurozone within existing treaties.

The official also admitted he was more pessimistic than a week ago about reaching a deal in Brussels.

British ‘safeguards’
Paris and Berlin appear to be pushing through more radical measures, correspondents say, and if all 27 EU members cannot agree, then they are prepared to work towards a new treaty involving the eurozone bloc and any other country that wants to join.

Such a move could leave Britain – a non-eurozone EU member – feeling more isolated.

UK Prime Minister David Cameron said on Wednesday that he would seek safeguards for London’s powerful financial sector at the summit.

“The more eurozone countries ask for, the more we will ask for in return,” he said.

Mr Cameron argues that a financial transaction tax would work only if adopted globally.

Ahead of the summit, positions appear to be hardening, our correspondent says.

Such is the depth of the crisis surrounding the eurozone that the main focus is not on the EU solidarity but on restoring market confidence in whatever way proves possible, he adds. Earlier this week, Standard & Poor’s put all eurozone nations on credit watch “with negative implications”.

The ratings agency said the decision was prompted “by our belief that systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole”